The equity markets and the global economy have been shaken, and this week saw the markets’ best sustained rally since the ’30s dissipate in just a few hours, while gross domestic product continues to decline and COVID cases continued to rise in key areas. At one point, the S&P 500 had made up for this year’s losses – only to post its worst daily decline since March on fears of a second wave of coronavirus cases (several states have seen upticks of late), an additional 1.5 million jobless claims and the potential impact on domestic and global economies, explained Chief Investment Officer Larry Adam. The uncertainty surrounding the availability of a potential vaccine compounded already low investor sentiment.
“Elevated levels of optimism and great expectations of a strong economic and earnings rebound are being met with a dose of reality,” Adam said. “However, we remain optimistic over the longer term.”
Senior Portfolio Strategist (Equity Portfolio & Technical Strategy) Joey Madere concurs, saying, “We continue to view the positives, such as an enormous fiscal and monetary response, as outweighing the potential negatives (e.g., the election, U.S./China trade rhetoric, virus resurgence).” As such, investors may want to accumulate favored sectors and stocks as this pullback plays out.
Progress has been made in curtailing the spread of COVID-19, yet as the majority of states reopen and large gatherings from protests continue, there’s the potential of a second wave of the virus. Although another national stay-at-home order is unlikely, according to Healthcare Policy Analyst Chris Meekins, continued upticks in cases could lead to worsening health outlooks and stronger mitigation measures in affected regions.
Whether we’ll see an additional round of stimulus out of D.C. remains to be seen, adds Washington Policy Analyst Ed Mills. “Back to work” is emerging as the theme of the next congressional fiscal relief package, but the direction of the economy and the trajectory of the virus will weigh significantly on the debate. For now, lawmakers anticipate short-term additional economic support with the launch of the Federal Reserve’s Main Street Lending Program, which could provide hundreds of billions in loans to midsized businesses left out of the previous government aid programs. The larger questions for the next congressional package revolve around aid to significantly affected sectors, extensions of expiring individual support (e.g., eviction protection, unemployment insurance), additional tweaks to small business lending, and whether more direct payments are necessary.
Here is a look at some key factors we are monitoring:
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